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Special Report July 28, 2020 The Metal in Britain’s Coins – Where did it come from and how did it get here? Dr Graham Birch joined the Sprott Board of Directors as Director in November 2019. He has in-depth experience in asset management, especially in precious metals, having been responsible for gold and mining investments at BlackRock in London. He was also a Director of ETF Securities, which pioneered the development of precious metals ETFs in Europe. Graham has just written a book about the historical origins of the bullion in Britain’s coins, with lessons in it for those who wish to understand the importance of gold and silver as money in a world of paper currencies. The following essay teases out these lessons. Dr Graham Birch Author, The Metal in Britain’s “The Metal in Britain’s Coins – Where did it come from and how did it get here?” is available Coins – Where did it come directly from the publisher; www.spinkbooks.com. from and how did it get here?; Director, Sprott Board of Directors, Sprott Inc. Lessons from History The “shock and awe” economic response to the COVID-19 pandemic from governments around the world will reverberate in capital markets for years to come. But are the ramifications good or bad? In Britain, most of the public is just grateful that swift and decisive action has been taken, few have stopped to question what the likely long-term consequences will be and how it will all be paid for. The uncomfortable truth is that we have already begun to pay, through a significant dilution in the underlying value of our currency and this process is ongoing, which helps to explain why the gold price in pounds has recently made a new high. When asked, the government tells the public that the money for economic stimulus has been “borrowed”. While this is technically true, it is nonetheless a deceit. There are simply not enough real investors willing to buy British Government bonds at zero interest rates with all the associated uncertainty of COVID and a looming BREXIT fiasco. Ultimately it is only the Bank of England who will buy the bonds in the quantities needed. The snag though is that the money the Bank uses to buy the bonds has been “magicked” into existence through expansion of the Bank’s balance sheet. Given that the Bank of England is wholly owned by the British Government, it is easy to see, that in effect, the Treasury is borrowing money from itself. There is no limit to how much money can be conjured up in this way and it is hugely attractive to politicians that the process continues. The alternative prudent approach would be to raise taxes and cut spending once the pandemic is over, but the economy is too weak for this and in any case, it would be political suicide for Boris Johnson, Prime Minister of the United Kingdom. Provided that inflation stays low, it must seem to Boris that current monetary policy is a “free lunch”. But is it really that easy? 1/7 Special Report July 28, 2020 History can provide the answer and in Dr Graham Birch’s new book he examines a two-thousand-year sweep of time from the earliest appearance of gold coins in Britain to the present day. The book addresses some of the basic questions about how Britain gained its wealth and where it came from. Certainly, from a historical perspective, it is true that the current situation where the Chancellor of the Exchequer, Rishi Sunak, can create money at the stroke of a pen is highly anomalous. For most of British history new money supply could only be generated through trade, mining or military action. The contrast between the past and Figure 1. Phillip II, gold stater, 320 BC. These exceptional coins were minted in pure gold and present is stark. continued to be made long after Phillip’s death. Money through Trade Gold and silver coins were invented in 610 BC in Lydia, part of modern Turkey. The benefits for trade were profound, and coin use spread quickly through the Mediterranean. Greek and Macedonian coins of exceptional quality and purity were critical to the development of civilisation as we know it (Figure 1). Britain was a latecomer to coinage technology and the first coins did not appear until second century BC. The gold and silver for Britain’s pre-Roman coins came through trade. The British Celtic tribes in pre-Roman southern England supplied mercenaries and raw materials to their counterparts on the near continent and developed a coinage system for local use (Figure 2). The designs are Celtic but were loosely Figure 2. Early British pre-Roman gold and silver based on the Phillip of Macedon gold staters circulating in the Mediterranean coins. The bullion was recycled and came into region. The gold for those early British coins ultimately came from mines such as England through trade. Crenides and Mount Pangeum in northern Greece. This bullion was recycled and debased several times before it ended up in England. After the Roman invasion in 43 AD Britain’s wealth became dependent on the pay packets of soldiers stationed there. At any given time, Rome stationed three or four legions in Britain and this wealth trickled down to create a consumer boom which raised living standards dramatically. Rome’s own gold and silver supply came largely from mines in Spain and some of these, such as the Las Médulas gold mine and the silver mines of Rio Tinto, were large even by modern standards (Figure 3). After the Romans left in 410 AD, the unsustainability of Britain’s economic model was cruelly exposed and the ensuing economic/political collapse lasted for centuries. How envious the dark ages warlords would have been of Rishi Sunak’s ability to produce money from thin air. Fast forward to the era of European renaissance and discovery. There was a thirst for exploration in Britain, yet the costs were too high for individuals to bear. This led to the formation of joint stock companies such as the Royal African Company, the East India Company and the South Sea Company. These well-resourced Figure 3. Las Médulas Roman gold mine in businesses, backed by shareholders, could trade globally with rich pickings to Spain. The environmental destruction is still be had. evident. Source UNESCO. 2/7 Special Report July 28, 2020 The Royal African Company set up forts throughout West Africa where it could sell English weapons, textiles and metalware to the African chiefs in exchange for gold. The English never dared venture far inland and so never saw the strategically secret gold diggings located in what is now Ghana. To enhance profitability of voyages the ships didn’t always go straight back to England once the merchandise was sold. Instead, the Royal African Company bought slaves locally which were then trafficked to the Americas/Caribbean in exchange for tropical goods such as sugar. This trade became known as the “Bloody Triangle” and the unspeakable cruelty involved still resonates today. Large amounts of West African gold were brought back to England and coins minted from this metal were distinguished by an elephant below the King’s bust (Figure 4). The elephant charmed the public and the coins became known colloquially as “guineas”. The slave trade is no more but in some respects the merchant trade continues. Little of Ghana’s gold output Figure 4. James II Guinea. The elephant logo beneath the bust shows that the gold was remains in the country, most is exported in exchange for manufactured goods. supplied by the Royal African Company. The East India Company (“EIC”) was formed by Elizabeth I to exploit the trading opportunities in India and China. Exotic textiles and spices were highly prized back in Europe and there were huge profits to be had, especially given that the EIC had a monopoly on the trade. What made the trade super-profitable though, was a remarkable precious metals arbitrage opportunity. The import of huge amounts of silver into Spain from South America had distorted the markets and the gold to silver ratio in Europe was around 14 to 1 whereas in China and India it was less than ten to one. This differential spelt almost risk-free profits and meant that the EIC was constantly exporting silver and importing gold into Britain. The Company sent some of this gold to the Royal Mint to be struck into guineas, marked with Figure 5. Five Guineas coin of George II. The letters EIC beneath the King’s head tell us that the corporate logo under the King’s head. The EIC was institutionally corrupt and the gold was from the East India Company. these distinctive coins were most likely used for bribing Government officials. Gold and Silver Mining Queen Elizabeth I was jealous of the torrent of bullion flooding into Spain from Peru and Mexico. She wanted something similar for England and so much better if it was close to home. She therefore privatised mining rights and allowed the formation of a joint stock company to exploit the British mining opportunity. This worked and by the seventeenth century, entrepreneurs such as Sir Hugh Myddelton and Thomas Bushell had applied new mining and smelting technology to develop underground silver-lead mines in Wales which supplied silver to the Mint. Coins made from this bullion carry a plume to signify the origin of the metal. When the Civil War broke out in 1642, Bushell single-handedly provided the King with the finances for his army, utilising the silver mined in Wales together with metal “borrowed” from rich people and Oxford colleges.

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